Now, imagine that you were signed up to the Modern Monetary Theory bandwagon. No, go on, shave however much necessary off your IQ and imagine so.
So, what’s the cause of inflation in the MMT world? Government’s printed too much money and therefore needs to retire some of it, subtract that excess from the money supply.
No, really, that is the idea and the claim. It’s one of the bits of MMT that has a lot going for it too. We can fit it right into standard monetarism for example, it’s not conflicting at all with what we think is generally true. Sure, it concentrates a bit too much on base or narrow money, fails to really grasp money multipliers and so on but as far as it goes it’s fine.
Recall - the claim is that government never does run out of money. It can just print more, anytime. The limitation is not money at all - it’s real resources which that extra money can put to work. If there aren’t the real resources available to meet that extra money printing then inflation will result.
So, if inflation appears then government must reduce the money supply. It can do this by taxing more - running a budget surplus. That surplus isn’t spent - that’s why it’s a surplus - and gets destroyed. Money supply goes down, starts to meet the real resources limitation and the inflation stops. Cool!
In a more complex economy there are other ways of reducing that money supply. Say, ooooh just to imagine something unthinkable, a previous government had excessively expanded the money supply by printing lots of money and buying government bonds with it. If the new government then sold those bonds, collected the money and stuck it in the basement that would reduce the money supply. And so stall or collapse that inflation again.
At which point, when someone says they’re going to do that, we get Professor Richard J Murphy. Who is, in his own lunchtime at least, a global expert on Modern Monetary Theory:
They are deliberately taking money out of the economy. They know that will shrink it. That is their deliberate goal. They are pursuing this in the vain hope that this will control inflation that was created by reasons way beyond their control, which reasons have gone away. The way they will achieve that is by shrinking the economy i.e. by creating a recession.
We shouldn’t use the MMT method of reducing inflation because that’s…..reasons.
My assumption is that Professor Richard J Murphy simply does not understand MMT, that theory that he’s a global expert in. For the alternative, that he’s deliberately misleading us all, is impossible to consider. No, no, wholly impossible to believe that of a professor at a British university.